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Tax Notes

The Treasury Department and the IRS
request comments on a draft of a proposed
Schedule M-3, Net Income (Loss)
Reconciliation for Corporations With Total
Assets of $10 Million or More (
www.irs.gov/businesses/corporations/article/0,,id=119992,00.html
), for use by certain corporate taxpayers
filing Form 1120, U.S. Corporation Income
Tax Return. The new schedule would expand
the current Schedule M-1, Reconciliation of
Income (Loss) per Books With Income per
Return, which the IRS last updated
several decades ago. The department and service
expect to release as final the new schedule for
use with federal income tax returns for periods
ending on or after December 31, 2004. Comments,
which should be directed to Susan Blake at PFTG2@irs.gov
, are due April 30.

The IRS adds to its Web site a
section on abusive tax shelters, which
unscrupulous promoters sometimes persuade
employee retirement plan administrators to use
(
www.irs.gov/retirement/article/ ). The
new section enumerates several “listed
transactions” involving plans the service says
are the same as or substantially similar to
others it has identified as tax-avoidance
transactions. Examples of such shelters
include accelerated 401(k) deductions, S
corporation employee stock ownership plans
improperly delaying the effective date of IRC
section 409(p)’s nonallocation rules,
collectively bargained welfare benefits under
IRC section 419A(f)(5), certain trust
arrangements seeking to qualify for exemption
from IRC section 419, abusive Roth IRA
transactions and deductions for excess life
insurance in an IRC section 412(i) or other
defined benefit plan.

The IRS in February began sharing
with tax authorities in 45 states, the
District of Columbia and New York City
information on more than 20,000 taxpayers
engaged in abusive practices (
www.irs.gov/newsroom/article/0,,id=120343,00.html
). By doing so the service continued a
program begun in September 2003 under which
the IRS and the states pool their resources to
target abusive tax-avoidance transactions ( www.irs.gov/newsroom/article/0,,id=112866,00.html
). The shared data concern scams
involving—among other things—offshore
transactions, abusive trusts, employee
leasing, home-based businesses and employment
taxes.

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